Business conditions hit two-and-a-half-year high, confidence steady

Business conditions are finally approaching levels of confidence, which jumped after the federal election.

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Business conditions jumped 7 points in December to be at the highest level in more than two-and-a-half years.

The National Australia Bank's monthly business survey shows conditions are at +4, which NAB says is around average levels.

Business confidence held steady at +6, also around average levels, following a big jump after the federal election.

NAB says the rise in conditions was driven largely by the transport, wholesale and services industries, while manufacturing and construction were notable exceptions and remain well in negative territory.

Conditions rose most strongly in Western Australia (up 17 points), South Australia rose 11 points, and New South Wales and Victoria increased 7 points.

The bank also warns that other indicators of business conditions are not as positive about future economic growth.

"The sustainability of the jump may be questionable given subdued forward orders, a run down in stocks (although this may be involuntary), and still low capacity utilisation. Employment conditions remain soft (-4 index points)," the report noted.

"Clearly the January reading (post-seasonality) will give a better read on the growth momentum."

Forward orders have remained stuck at -2, where it has been for the past three months, in a sign that future demand remains subdued.